##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-18279
 TRI-COUNTY
FINANCIAL CORPORATION
  Maryland
    
    52-1652138(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 3035 Leonardtown Road, Waldorf, Maryland
    
    20601(Address of Principal Executive Offices)
    
    (Zip Code)
 (301) 645-5601
 None
  Common Stock, par value $.01 per share
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 1.
    
    Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2005.
(Part II)2.
    
    Portions of Proxy Statement for 2006 Annual Meeting of Stockholders. (Part III)




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##### 



INDEX
 PagePart IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    24Item 1B. Unresolved Staff Comments
    
    
    27Item 2. Properties
    
    
    27Item 3. Legal Proceedings
    
    
    28Item 4. Submission of Matters to a Vote of Securities Holders
    
    
    28Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    28Item 6. Selected Financial Data
    
    
    29Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    29Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 8. Financial Statements and Supplementary Data
    
    
    29Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    29Item 9A. Controls and Procedures
    
    
    29Item 9B. Other Information
    
    
    29Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    29Item 11. Executive Compensation
    
    
    30Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    30Item 13. Certain Relationships and Related Transactions
    
    
    31Item 14. Principal Accountant Fees and Services
    
    
    31Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    31EX-13 ANNUAL REPORT TO STOCKHOLDERS FOR FISCAL YEAR ENDED DECEMBER 31, 2005EX-14 CODE OF ETHICSEX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF STEGMAN & COMPANYEX-31.1 SECTION 302 CERIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO
  i




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##### Table of Contents



PART I
 This report contains certain forward-looking statements within the meaning of the federal
securities laws. These statements are not historical facts, rather statements based on Tri-County
Financial Corporations current expectations regarding its business strategies, intended results
and future performance. Forward-looking statements are preceded by terms such as expects,
believes, anticipates, intends and similar expressions.
 Managements ability to predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could affect actual results include interest rate trends, the general
economic climate in the market area in which Tri-County Financial Corporation operates, as well as
nationwide, Tri-County Financial Corporations ability to control costs and expenses, competitive
products and pricing, loan delinquency rates and changes in federal and state legislation and
regulation. These factors should be considered in evaluating the forward-looking statements and
undue reliance should not be placed on such statements. Tri-County Financial Corporation assumes
no obligation to update any forward-looking statements.
 
 Item 1. Business
    Available Information
  Market Area
  - 1 -




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Competition
  Lending Activities
 General.
 Residential First Mortgage Loans.
  2




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##### Table of Contents



Commercial Real Estate and Other Non-Residential Real Estate Loans.
  Construction and Land Development Loans.
 3




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##### Table of Contents



Home Equity and Second Mortgage Loans.
  Commercial Loans.
 4




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##### Table of Contents



Consumer Loans.
 Commercial Equipment Loans.
 5




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##### Table of Contents



Loan Portfolio Analysis.
 At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Real estate loansCommercial
    
    $
    166,851
    
    
    
    44.66
    %
    
    $
    136,342
    
    
    
    46.51
    %
    
    $
    93,825
    
    
    
    42.46
    %
    
    $
    74,292
    
    
    
    37.07
    %
    
    $
    65,617
    
    
    
    33.39
    %Residential first mortgage
    
    
    73,628
    
    
    
    19.71
    
    
    
    59,087
    
    
    
    20.16
    
    
    
    42,971
    
    
    
    19.45
    
    
    
    48,976
    
    
    
    24.44
    
    
    
    61,430
    
    
    
    31.26Construction and land development
    
    
    32,608
    
    
    
    8.73
    
    
    
    17,598
    
    
    
    6.00
    
    
    
    19,599
    
    
    
    8.87
    
    
    
    14,579
    
    
    
    7.27
    
    
    
    18,136
    
    
    
    9.23Home equity and second mortgage
    
    
    25,884
    
    
    
    6.93
    
    
    
    23,925
    
    
    
    8.16
    
    
    
    19,562
    
    
    
    8.85
    
    
    
    19,007
    
    
    
    9.48
    
    
    
    18,580
    
    
    
    9.46Commercial loans
    
    
    54,738
    
    
    
    14.65
    
    
    
    39,137
    
    
    
    13.35
    
    
    
    30,436
    
    
    
    13.77
    
    
    
    29,947
    
    
    
    14.94
    
    
    
    18,539
    
    
    
    9.44Consumer loans
    
    
    3,128
    
    
    
    0.84
    
    
    
    3,462
    
    
    
    1.18
    
    
    
    4,097
    
    
    
    1.85
    
    
    
    4,623
    
    
    
    2.31
    
    
    
    5,092
    
    
    
    2.59Commercial equipment
    
    
    16,742
    
    
    
    4.48
    
    
    
    13,596
    
    
    
    4.64
    
    
    
    10,473
    
    
    
    4.74
    
    
    
    9,007
    
    
    
    4.49
    
    
    
    9,095
    
    
    
    4.63Total loans
    
    
    373,579
    
    
    
    100.00
    %
    
    
    293,147
    
    
    
    100.00
    %
    
    
    220,963
    
    
    
    100.00
    %
    
    
    200,431
    
    
    
    100.00
    %
    
    
    196,489
    
    
    
    100.00
    %Less: Deferred loan fees, net
    
    
    604
    
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    650
    
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    757Loan loss reserve
    
    
    3,383
    
    
    
    
    
    
    
    3,058
    
    
    
    
    
    
    
    2,573
    
    
    
    
    
    
    
    2,314
    
    
    
    
    
    
    
    2,282Loans receivable, net
    
    $
    369,592
    
    
    
    
    
    
    $
    289,325
    
    
    
    
    
    
    $
    217,740
    
    
    
    
    
    
    $
    197,449
    
    
    
    
    
    
    $
    193,450
 6




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Loan Originations, Purchases and Sales.
 Loan Approvals, Procedures and Authority
  Loans to One Borrower.
 Loan Commitments.
 7




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##### Table of Contents



Maturity of Loan Portfolio.
 (Dollars in thousands)Due within one
    
    
    Due after one year
    
    
    Due more thanyear after
    
    
    through five years from
    
    
    five years fromDecember 31, 2005
    
    
    December 31, 2005
    
    
    December 31, 2005Real estate loansCommercial
    
    $
    25,460
    
    
    $
    26,571
    
    
    $
    114,820Residential first mortgage
    
    
    3,565
    
    
    
    13,592
    
    
    
    56,470Construction and land development
    
    
    32,608
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    18,847
    
    
    
    2,720
    
    
    
    4,317Commercial loans
    
    
    53,157
    
    
    
    223
    
    
    
    1,358Consumer loans
    
    
    1,524
    
    
    
    1,411
    
    
    
    193Commercial equipment
    
    
    5,084
    
    
    
    10,436
    
    
    
    1,222Total loans
    
    $
    140,245
    
    
    $
    54,953
    
    
    $
    178,380
  (Dollars in thousands)Floating orFixed Rates
    
    
    Adjustable Rates
    
    
    TotalReal estate loansCommercial
    
    $
    
    
    
    $
    141,391
    
    
    $
    141,391Residential first mortgage
    
    
    57,778
    
    
    
    12,284
    
    
    
    70,062Construction and land
development
    
    
    
    
    
    
    
    
    
    
    Home equity and second
mortgage
    
    
    6,954
    
    
    
    83
    
    
    
    7,037Commercial lines of credit
    
    
    
    
    
    
    1,581
    
    
    
    1,581Consumer loans
    
    
    1,604
    
    
    
    
    
    
    
    1,604Commercial equipment
    
    
    11,467
    
    
    
    191
    
    
    
    11,658Total Loans
    
    $
    77,803
    
    
    $
    155,530
    
    
    $
    233,333
 Delinquencies.
 Non-Performing Assets and Asset Classification.
 8




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Foreclosed Real Estate
   9




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##### Table of Contents



Delinquent and Nonaccrual Loans
  (Dollars in thousands)
At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Accruing loans which are contractually past due 90 days or moreReal estate loansCommercial
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Residential first mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction and land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Commercial loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Loans accounted for on a nonaccrual basisReal estate loansCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential first mortgage
    
    
    273
    
    
    
    273
    
    
    
    275
    
    
    
    278
    
    
    
    134Construction and land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    Commercial loans
    
    
    258
    
    
    
    393
    
    
    
    103
    
    
    
    269
    
    
    
    Consumer loans
    
    
    7
    
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    70Commercial equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    591
    
    
    
    675
    
    
    
    379
    
    
    
    597
    
    
    
    204Total non-performing loans
    
    $
    591
    
    
    $
    675
    
    
    $
    379
    
    
    $
    597
    
    
    $
    229
  10




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(Dollars in thousands)
At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance at beginning of period
    
    $
    3,058
    
    
    $
    2,573
    
    
    $
    2,314
    
    
    $
    2,282
    
    
    $
    1,930Charge-offsReal estate loansCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential first mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction and land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    Commercial loans
    
    
    3
    
    
    
    1
    
    
    
    35
    
    
    
    59
    
    
    
    Consumer loans
    
    
    2
    
    
    
    3
    
    
    
    2
    
    
    
    15
    
    
    
    39Commercial equipment
    
    
    4
    
    
    
    14
    
    
    
    24
    
    
    
    
    
    
    
    Total charge-offs
    
    
    9
    
    
    
    18
    
    
    
    61
    
    
    
    131
    
    
    
    39RecoveriesReal estate loansCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential first mortgage
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    Construction and land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer loans
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    3
    
    
    
    31Commercial equipment
    
    
    5
    
    
    
    8
    
    
    
    2
    
    
    
    
    
    
    
    Total recoveries
    
    
    5
    
    
    
    50
    
    
    
    2
    
    
    
    3
    
    
    
    31Net (recoveries) charge-offs
    
    
    4
    
    
    
    (32
    )
    
    
    58
    
    
    
    128
    
    
    
    8Provision for loan losses
    
    
    329
    
    
    
    453
    
    
    
    317
    
    
    
    160
    
    
    
    360Balance at end of period
    
    $
    3,383
    
    
    $
    3,058
    
    
    $
    2,573
    
    
    $
    2,314
    
    
    $
    2,282Ratio of net charge-offs (recoveries) to average loans
outstanding during the year
    
    
    0.00
    %
    
    
    (-0.01
    %)
    
    
    0.02
    %
    
    
    0.06
    %
    
    
    0.00
    %
 11




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(Dollars in thousands)At December 31,2005
    
    
    2004
    
    
    2003Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    EachCategory to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total LoansReal estate loansCommercial
    
    $
    1,466
    
    
    
    44.66
    %
    
    $
    1,909
    
    
    
    46.51
    %
    
    $
    1,409
    
    
    
    42.46
    %Residential first mortgage
    
    
    73
    
    
    
    19.71
    
    
    
    59
    
    
    
    20.16
    
    
    
    64
    
    
    
    19.45Construction and land development
    
    
    502
    
    
    
    8.73
    
    
    
    132
    
    
    
    6.00
    
    
    
    281
    
    
    
    8.87Home equity and second mortgage
    
    
    109
    
    
    
    6.93
    
    
    
    120
    
    
    
    8.16
    
    
    
    244
    
    
    
    8.85Commercial loans
    
    
    709
    
    
    
    14.65
    
    
    
    530
    
    
    
    13.35
    
    
    
    381
    
    
    
    13.77Consumer loans
    
    
    124
    
    
    
    0.84
    
    
    
    138
    
    
    
    1.18
    
    
    
    63
    
    
    
    1.85Commercial equipment
    
    
    400
    
    
    
    4.48
    
    
    
    170
    
    
    
    4.64
    
    
    
    131
    
    
    
    4.74Total allowance for loan losses
    
    
    3,383
    
    
    
    100.00
    %
    
    $
    3,058
    
    
    
    100.00
    %
    
    $
    2,573
    
    
    
    100.00
    %
 (Dollars in thousands)At December 31,2002
    
    
    2001Percent ofPercent of
    
    
    
    
    
    
    Loans inLoans in Each
    
    
    
    
    
    
    EachCategory to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total LoansReal estate loansCommercial
    
    $
    1,077
    
    
    
    37.07
    %
    
    $
    923
    
    
    
    33.39
    %Residential first mortgage
    
    
    118
    
    
    
    24.44
    
    
    
    160
    
    
    
    31.26Construction and land development
    
    
    211
    
    
    
    7.27
    
    
    
    355
    
    
    
    9.23Home equity and second mortgage
    
    
    276
    
    
    
    9.48
    
    
    
    373
    
    
    
    9.46Commercial loans
    
    
    434
    
    
    
    14.94
    
    
    
    186
    
    
    
    9.44Consumer loans
    
    
    68
    
    
    
    2.31
    
    
    
    102
    
    
    
    2.59Commercial equipment
    
    
    130
    
    
    
    4.49
    
    
    
    183
    
    
    
    4.63Total allowance for loan losses
    
    $
    2,314
    
    
    
    100.00
    %
    
    $
    2,282
    
    
    
    100.00
    %
  12




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##### Table of Contents



Managements Discussion and
Analysis of Financial Condition and Results of OperationsCritical Accounting Policies
 Investment Activities
   (Dollars in thousands)At December 31,2005
    
    
    2004
    
    
    2003Asset-backed securitiesFreddie Mac and Fannie Mae
    
    $
    84,334
    
    
    $
    155,678
    
    
    $
    84,764Other
    
    
    37,383
    
    
    
    16,535
    
    
    
    7,284Total asset-backed securities
    
    
    121,717
    
    
    
    172,213
    
    
    
    92,048Freddie Mac and Fannie Mae stock
    
    
    719
    
    
    
    766
    
    
    
    756Bond mutual funds
    
    
    127
    
    
    
    630
    
    
    
    2,838Treasury bills
    
    
    499
    
    
    
    300
    
    
    
    300Other investments
    
    
    604
    
    
    
    1,781
    
    
    
    3,954Total investment securities
    
    
    123,666
    
    
    
    175,690
    
    
    
    99,895FHLB and Federal Reserve Bank stock
    
    
    7,190
    
    
    
    6,144
    
    
    
    4,777Total investment securities and FHLB
and Federal Reserve Bank stock
    
    $
    130,856
    
    
    $
    181,834
    
    
    $
    104,672
 13




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##### Table of Contents



After One
    
    
    After FiveOne Year or Less
    
    
    Through Five Years
    
    
    Through Ten Years
    
    
    After Ten YearsAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield(Dollars in thousands)Investment securities available
for saleCorporate equity securities
    
    $
    481
    
    
    
    2.73
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %Asset-backed securities
    
    
    1,645
    
    
    
    4.64
    
    
    
    4,597
    
    
    
    4.97
    
    
    
    
    
    
    
    0.00
    
    
    
    252
    
    
    
    7.00Mutual funds
    
    
    129
    
    
    
    2.23
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Total investment securities
available for sale
    
    $
    2,255
    
    
    
    4.09
    %
    
    $
    4,597
    
    
    
    4.97
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    252
    
    
    
    7.00
    %Investment securities held to
maturityAsset-backed securities
    
    $
    34,486
    
    
    
    5.02
    %
    
    $
    76,516
    
    
    
    4.44
    %
    
    $
    4,382
    
    
    
    4.42
    %
    
    $
    
    
    
    
    0.00
    %Treasury bills
    
    
    499
    
    
    
    3.53
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Other investments
    
    
    459
    
    
    
    5.98
    
    
    
    145
    
    
    
    5.98
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    0.00Total investment securities
held to maturity
    
    $
    35,444
    
    
    
    5.01
    %
    
    $
    76,661
    
    
    
    4.44
    %
    
    $
    4,382
    
    
    
    4.42
    %
    
    $
    
    
    
    
    0.00
    %
  Issuer
    
    Book Value
    
    
    RatingWells Fargo
    
    $
    8,097,588
    
    
    AAAMorgan Stanley
    
    $
    6,252,271
    
    
    AAACountrywide
    
    $
    4,789,167
    
    
    AAA
 14




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##### Table of Contents



Deposits and Other Sources of Funds
 General.
 Deposits.
  (Dollars in thousands)2005
    
    
    2004
    
    
    2003Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateSavings
    
    $
    36,696
    
    
    
    0.59
    %
    
    $
    37,776
    
    
    
    0.47
    %
    
    $
    32,772
    
    
    
    0.51
    %Interest-bearing demand and money
market accounts
    
    
    89,394
    
    
    
    1.55
    %
    
    
    85,212
    
    
    
    0.89
    %
    
    
    67,346
    
    
    
    0.66
    %Certificates of deposit
    
    
    146,512
    
    
    
    3.32
    %
    
    
    93,267
    
    
    
    2.46
    %
    
    
    82,248
    
    
    
    2.75
    %Total interest-bearing deposits
    
    
    272,602
    
    
    
    2.37
    %
    
    
    216,255
    
    
    
    1.49
    %
    
    
    182,366
    
    
    
    1.57
    %Noninterest-bearing demand deposits
    
    
    39,855
    
    
    
    
    
    
    
    32,909
    
    
    
    
    
    
    
    30,277$
    312,457
    
    
    
    2.07
    %
    
    $
    249,164
    
    
    
    1.29
    %
    
    $
    212,643
    
    
    
    1.35
    %
  (Dollars inthousands)CertificatesMaturity Period
    
    of DepositThree months or less
    
    $
    15,751Three through six months
    
    
    6,532Six through twelve months
    
    
    27,489Over twelve months
    
    
    14,951$
    64,723
 Borrowings.
 15




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##### Table of Contents



(Dollars in thousands)At or for theYear Ended December 31,2005
    
    
    2004
    
    
    2003Long-term debt outstanding at end of period
    
    $
    107,824
    
    
    $
    82,931
    
    
    $
    63,051Weighted average rate on outstanding long-term debt
    
    
    4.25
    %
    
    
    4.20
    %
    
    
    4.55
    %Maximum outstanding long-term debt of any month end
    
    
    107,826
    
    
    
    82,931
    
    
    
    74,062Average outstanding long-term debt
    
    
    93,409
    
    
    
    73,830
    
    
    
    60,024Approximate average rate paid on long-term debt
    
    
    4.25
    %
    
    
    4.39
    %
    
    
    4.56
    %Short-term debt outstanding at end of period
    
    
    20,075
    
    
    
    115,304
    
    
    
    31,191Weighted average rate on outstanding short-term debt
    
    
    4.43
    %
    
    
    2.53
    %
    
    
    1.15
    %Maximum outstanding short-term debt at any month end
    
    
    123,968
    
    
    
    122,693
    
    
    
    40,000Average outstanding short-term debt
    
    
    82,665
    
    
    
    64,736
    
    
    
    7,568Approximate average rate paid on short-term debt
    
    
    3.10
    %
    
    
    1.80
    %
    
    
    1.26
    %
  Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures
  Subsidiary Activities
   SUPERVISION AND REGULATION
 Regulation of the Company
 General.
 16




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##### Table of Contents



17




---



##### Table of Contents



Dividends.
 Stock Repurchases.
 Capital Requirements.
 18




---



##### Table of Contents



Sarbanes-Oxley Act of 2002 and Related Regulations.
 de
minimis
  Regulation of the Bank
 General.
  19
    Table of Contents    Capital Adequacy.
      20




---



##### Table of Contents



Branching. de novo
 Dividend Limitations.
  Deposit Insurance.
   21




---



##### Table of Contents



i.e.
 Transactions with Affiliates.
 Loans to Directors, Executive Officers and Principal Stockholders.
 Enforcement.
  22




---



##### Table of Contents



U.S.A. Patriot Act.
 Personnel
  Executive Officers of the Registrant
  Michael L. Middleton
 C. Marie Brown
 H. Beaman Smith
 Gregory C. Cockerham
 William J. Pasenelli
 23




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##### Table of Contents



Item 1A. Risk Factors
 An investment in shares of our common stock involves various risks. Before deciding to invest in
our common stock, you should carefully consider the risks described below in conjunction with the
other information in this offering memorandum, including the items included as exhibits. Our
business, financial condition and results of operations could be harmed by any of the following
risks or by other risks that have not been identified or that we may believe are immaterial or
unlikely. The value or market price of our common stock could decline due to any of these risks,
and you may lose all or part of your investment. The risks discussed below also include
forward-looking statements, and our actual results may differ substantially from those discussed in
these forward-looking statements.
 Our business strategy includes the continuation of significant growth plans, and our financial
condition and results of operations could be negatively affected if we fail to grow or fail to
manage our growth effectively.
  Certain interest rate movements may hurt our earnings.
  Our increased emphasis on commercial and construction lending may expose us to increased lending
risks.
  24




---



##### Table of Contents



Our recent results may not be indicative of our future operating results.
  Strong competition within our market area could hurt our profits and slow growth.
  If we do not achieve profitability on our new branch, it may negatively impact our earnings.
  If the value of real estate in southern Maryland were to decline materially, a significant portion
of our loan portfolio could become under-collateralized, which could have a material adverse effect
on us.
  Our business is subject to the success of the local economy in which we operate.
  25




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##### Table of Contents



The trading history of our common stock is characterized by low trading volume. Our common stock
may be subject to sudden decreases.
   Ø
    
    actual or anticipated fluctuations in our operating results;Ø

    
    changes in interest rates;Ø

    
    changes in the legal or regulatory environment in which we operate;Ø

    
    press releases, announcements or publicity relating to us or our competitors or
relating to trends in our industry;Ø

    
    changes in expectations as to our future financial performance, including financial
estimates or recommendations by securities analysts and investors;Ø

    
    future sales of our common stock;Ø

    
    changes in economic conditions in our marketplace, general conditions in the U.S.
economy, financial markets or the banking industry; andØ

    
    other developments affecting our competitors or us.
  We operate in a highly regulated environment and we may be adversely affected by changes in laws
and regulations.
  26




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##### Table of Contents



Provisions of our articles of incorporation, bylaws and Maryland law, as well as state and federal
banking regulations, could delay or prevent a takeover of us by a third party.
  
 Item 1B.  Unresolved Staff Comments
  
 Item 2.  Properties
  Year Facility
    
    Leased
    
    ApproximateOffice
    
    Commenced
    
    or
    
    SquareLocation
    
    Operation
    
    Owned
    
    FootageMain Office3035 Leonardtown Road
    
    
    1974
    
    
    Owned
    
    
    16,500Waldorf, MarylandBranch Offices22730 Three Notch Rd.
    
    
    1992
    
    
    Owned
    
    
    2,500Lexington Park, Maryland25395 Point Lookout Rd.
    
    
    1961
    
    
    Owned
    
    
    2,500Leonardtown, Maryland101 Drury Drive
    
    
    2001
    
    
    Owned
    
    
    2,645La Plata, Maryland10321 Southern Md. Blvd.
    
    
    1991
    
    
    Leased
    
    
    1,400Dunkirk, Maryland8010 Matthews Road
    
    
    1996
    
    
    Owned
    
    
    2,500Bryans Road, Maryland20 St. Patricks Drive
    
    
    1998
    
    
    Leased (Land)
    
    2,840Waldorf, Maryland
    
    
    
    
    
    Owned (Building)30165 Three Notch Road
    
    
    2001
    
    
    Leased (Land)
    
    2,500Charlotte Hall, Maryland
    
    
    
    
    
    Owned (Building)200 Market Square
    
    
    2005
    
    
    Leased (Land)
    
    2,800Prince Frederick, Maryland
    
    
    
    
    
    Owned (Building)
 27




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##### Table of Contents



Item 3.  Legal Proceedings
  
 Item 4.  Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5.  Market for Registrants Common Equity, Related Security Holder Matters and Issuer
Purchases of Equity Securities
 Market Price and Dividends on Registrants and Related Stockholder Matters
  Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 (c)Total Numberof Shares
    
    
    (d)Purchased
    
    
    Maximum(a)
    
    
    
    
    
    
    as Part of
    
    
    Number of SharesTotal
    
    
    (b)
    
    
    Publicly
    
    
    that May Yet BeNumber of
    
    
    Average
    
    
    Announced Plans
    
    
    Purchased UnderShares
    
    
    Price Paid
    
    
    or
    
    
    the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsOctober 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    62,087November 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,087December 2005
    
    
    1,976
    
    
    
    30.27
    
    
    
    1,976
    
    
    
    62,087Total
    
    
    1,976
    
    
    $
    30.27
    
    
    
    1,976
    
    
    
    62,087
 28




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##### Table of Contents



Item 6.  Selected Financial Data
  
 Item 7.  Managements Discussion and Analysis of Financial Condition and Results of
Operation
  
 Item 7A.  Quantitative and Qualitative Disclosure About Market Risk
  
 Item 8.  Financial Statements and Supplementary Data
  
 Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A.  Controls and Procedures
   
 Item 9B.  Other Information
  
 PART III
 
 Item 10.  Directors and Executive Officers of the Registrant
  29




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##### Table of Contents



Item 11.  Executive Compensation
  
 Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 (a) Security Ownership of Certain Owners
  (b) Security Ownership of Management
  (c) Changes in Control
  (d) Equity Compensation Plan Information
  30




---



##### Table of Contents



(c)Number of securities remaining(a)
    
    
    (b)
    
    
    available for future issuanceNumber of securities to be issued
    
    
    Weighted average exercise price
    
    
    under equity compensation plansupon exercise of outstanding
    
    
    of outstanding options, warrants,
    
    
    (excluding securities reflected inPlan Category
    
    options, warrants, and rights
    
    
    and rights
    
    
    column (a)Equity plans
approved by
security holders
    
    
    251,202
    
    
    
    $  20.70
    
    
    
    105,474Equity compensation
plans not approved
by security holders
(1)
    
    
    45,300
    
    
    
    $  18.63
    
    
    
    Total
    
    
    296,502
    
    
    
    $  20.38
    
    
    
    105,474
 
 (1)
    
    Consists of the 1995 Stock Option Plan for Non-Employee Directors which provided grants of
non-incentive options to directors who are not employees of the Company or its subsidiaries.
Options were granted under the plan at an exercise price equal to their fair market value at
the date of grant and had a term of ten years. Options are generally exercisable while an
optionee serves as a director or within one year thereafter. This plan expired in 2005. 
 Item 13.  Certain Relationships and Related Transactions
  
 Item 14.  Principal Accountant Fees and Services
  
 PART IV
 
 Item 15.  Exhibits and Financial Statement Schedules
 (a) List of Documents Filed as Part of this Report
 Financial Statements
       Financial Statement Schedules .
 31




---



##### Table of Contents



Exhibits
 No.
    
    Description3.1
    
    Articles of Incorporation of Tri-County Financial Corporation (1)3.2
    
    Amended and Restated Bylaws of Tri-County Financial Corporation (2)4.2
    
    No long-term debt instrument issued
by the Registrant exceeds 10% of consolidated assets or is
registered. In accordance with paragraph 4(iii) of Item 601(b) of
Regulation S-K, the Registrant will furnish the Securities and
Exchange Commission copies of long-term debt instruments and related
agreements upon request.10.1
    
    Tri-County Financial Corporation 1995 Stock Option and Incentive Plan, as amended (3)10.2
    
    Tri-County Financial
Corporation 1995 Stock Option Plan for Non-Employee Directors, as amended (4)10.3
    
    Employment Agreements with C. Marie Brown, as amended, and Gregory C. Cockerham
(2)10.4
    
    Restated Employment Agreement with Michael L. Middleton (5)10.5
    
    Guaranty Agreements with Michael L. Middleton, C. Marie Brown and Gregory C.
Cockerham (3)10.6
    
    Executive Incentive Compensation Plan (3)10.7
    
    Executive Compensation Plan 2003 Amendment (5)10.8
    
    Employment Agreement with William J. Pasenelli (3)10.9
    
    Retirement Plan for Directors (3)10.10
    
    Split Dollar Agreements with Michael L. Middleton and C. Marie Brown (3)10.11
    
    Guaranty Agreement with William J. Pasenelli (2)10.12
    
    Split Dollar Agreement with William J. Pasenelli (2)10.13
    
    Salary Continuation Agreement with Michael L. Middleton (5)10.14
    
    Salary Continuation Agreement with C. Marie Brown (5)10.15
    
    Salary Continuation Agreement with Gregory C. Cockerham (5)10.16
    
    Salary Continuation Agreement with William J. Pasenelli (5)10.17
    
    Amendment to the Community Bank of Tri-County Employment Agreement with C.
Marie Brown (6)10.18
    
    Amendment to the Community Bank of Tri-County Employment Agreement with
Gregory C. Cockerham (6)10.19
    
    Amendment to the Community Bank of Tri-County Employment Agreement with
William J. Pasenelli (6)10.20
    
    Tri-County Financial Corporation 2005 Equity Compensation Plan (7)13
    
    Annual Report to Stockholders for fiscal year ended December 31, 200514
    
    Code of Ethics21
    
    Subsidiaries of the Registrant23
    
    Consent of Stegman & Company31.1
    
    Rule 13a-14a Certification of Chief Executive Officer31.2
    
    Rule 13a-14a Certification of Chief Financial Officer32
    
    Certification pursuant to 18 U.S.C. Section 1350
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form
S-4 (No. 33-31287).(2)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.(3)
    
    Incorporated by reference to the Registrants Form 10-K for the fiscal year
ended December 31, 2000.(4)
    
    Incorporated by reference to the Registrants Registration Statement on Form
S-8 (File No. 333-70800).(5)
    
    Incorporated by reference to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.(6)
    
    Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for
the quarter ended September 30, 2005.(7)
    
    Incorporated by reference to Appendix A in the definitive proxy statement (File
No. 000-18279) filed with the Securities and Exchange Commission on April 11, 2005. (b)
    
    Exhibits.The exhibits required by Item 601 of Regulation S-K are either
filed as part of this Annual Report on Form 10-K or incorporated by reference herein.(c)
    
    Financial Statements and Schedules Excluded From Annual Report.There
are no other financial statements and financial statement schedules which were excluded
from the Annual Report pursuant to Rule 14a-3(b)(1) which are required to be included
herein.
 32




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##### Table of Contents



SIGNATURES
  TRI-COUNTY FINANCIAL CORPORATIONDate:
March 29, 2006
    
    By:
    
    /s/ Michael L. MiddletonMichael L. MiddletonPresident and Chief Executive Officer(Duly Authorized Representative)
  By:
    
    /s/ Michael L. Middleton
    
    By:
    
    /s/ William J. PasenelliMichael L. Middleton
    
    
    
    William J. Pasenelli(Director, President and Chief
    
    
    
    (Chief Financial and Accounting Officer)Executive Officer)Date: March 29, 2006
    
    Date: March 29, 2006By:
    
    /s/ C. Marie Brown
    
    By:
    
    /s/ Herbert N. Redmond, Jr.C. Marie Brown
    
    
    
    Herbert N. Redmond, Jr.(Director and Chief Operating Officer)
    
    
    
    (Director)Date: March 29, 2006
    
    Date: March 29, 2006By:
    
    /s/ H. Beaman Smith
    
    By:
    
    /s/ A. Joseph SlaterH. Beaman Smith
    
    
    
    A. Joseph Slater(Director and Secretary/Treasurer)
    
    
    
    (Director)Date: March 29, 2006
    
    Date: March 29, 2006By:
    
    /s/ Louis P. Jenkins, Jr.
    
    By:
    
    /s/ James R. ShepherdLouis P. Jenkins, Jr.
    
    
    
    James R. Shepherd(Director)
    
    
    
    (Director)Date: March 29, 2006
    
    Date: March 29, 2006